Remortgage and save £4,000 a year
In this week’s mortgage round-up we look at remortgaging could save you £4,000. We also reveal why 2019 is the year first-time homeowners should get a new mortgage and how low-deposit mortgages are booming.
April 24, 2019
Spring is the most popular season for buying property. As a result April is also a big month for mortgages maturing. A whopping £5.6bn worth of mortgage deals belonging to first-time homeowners mature this month. That means the initial deal that you signed up for will end and your lender will move you onto their standard variable rate (SVR) unless you remortgage onto a new deal.
The good news if your first ever mortgage deal is coming to an end, you could be able to seriously reduce your monthly outgoings. If you’ve had a repayment mortgage then you have gradually been chipping away at the amount you owe every month. This means you could now qualify for a lower loan-to-value mortgage than you did when you bought your home.
Typically, the lower the LTV you have on your property (that’s the percentage of the total value of your home that you need to borrow) the lower the interest rate you will pay. Find out more about LTVs and other mortgage jargon in our Mortgage Made Simple guide.
“We know it’s a busy time for homeowners remortgaging generally but for those coming to the end of their initial fixed rate term for the first time this month, it’s important they understand the value of remortgaging and not reverting to a lender’s standard variable rate,” says Charles Mungroo, senior mortgage manager at Yorkshire Building Society.
The average SVR is currently 4.89%, according to Moneyfacts. The average two-year fix on a 95% mortgage was around 2.5% two years ago. On a £200,000 a first-time homeowners would have been paying £897 a month at that rate. After two years they would have £188,000 left on their mortgage. A switch to the average SVR would up their repayments to £1,087 a month. In contrast, assuming their LTV has fallen to 85% they could now secure a two-year fix at 1.9%. This would cut their monthly repayments to £788, saving them over £100 a month.
If your initial deal was longer you could grab an even bigger saving by remortgaging now. A five year deal maturing this month could see a first time homeowners LTV drop from 90% to 75%. That’s because the average value of a first-time buyer property has risen by 22% over that period according to the Office of National Statistics.
Read our guide to remortgaging to find out more about when you should start shopping around and how to move lender.
Remortgage and save £4,000
It isn’t just first-time homebuyers who should be remortgaging now. According to Moneyfacts, 2019 is the year we should all shop around for a better mortgage deal.
Anyone who locked into a fixed rate mortgage two years ago – when the average rate was 2.3% – could see their interest rate more than double (+2.59%) if they revert to their lender’s SVR. The average SVR is currently 4.89%.
“Over the next six months, it is likely that many mortgage borrowers who secured a two-year mortgage deal two years ago may see their record low interest rate expiring and will have no intention to revert to a rate that could see their interest rate double overnight,” says Darren Cook from Moneyfacts.
Those rate changes could have a big impact on your wallet. Someone who took out a £250,000 repayment mortgage at 2.2% in October 2017, who moves onto an SVR could see their mortgage repayments rise by £4,336 a year.
The good news is the big number of potential remortgagers could lead to a rate war amongst lenders. “The significant increase in motivation for borrowers to switch mortgage deals, and the subsequent potential increase in remortgage business as a result, may push some mortgage lenders to marginally cut rates over the next few months to maintain a competitive edge,” says Cook.
If your mortgage deal is coming to an end in the next few months you can speak to our partners London & Country for fee-free mortgage advice. They can help you find the best new deal for your personal circumstances.
Low-deposit mortgage competition booms
If you only have a small deposit then things are looking good on the mortgage front. There are currently 405 mortgages available for people with a 5% deposit – or 5% equity in their home.
In contrast, 10 years ago there were just three deals available. In further good news the interest rates on these deals have also fallen sharply, reports the Daily Mail.
“As more firms become willing to lend at this higher risk tier, it means that potential borrowers have a greater choice of products, incentives and service from which to choose,” says Darren Cook of Moneyfacts which revealed the boom in mortgage offers.
If you are shopping around for a home with a small deposit choose somewhere you can stay for a while. Because you can only put down a small deposit there is a higher risk of you falling into negative equity. That is when the value of your home falls so your mortgage is more than your home is worth. If that happens you wouldn’t be able to remortgage. Find out more with our guide on what to do if you are in negative equity.
To protect yourself opt for a home you know you’ll be happy in for the medium to long-term. Also, go for a longer fixed rate deal. That way you won’t have to worry about remortgaging for longer. This will give your home more time to grow in value. Plus, you have longer to chip away at your home loan.
“The higher your loan compared to the value of your property, the more risk there is of negative equity,” says Ray Bouger, from mortgage broker John Charcol in the Daily Mail. “I certainly wouldn’t recommend anyone buying a property unless they are planning to stay there for at least three years.”
We would always recommend you speak to a fee-free mortgage broker to help you find the right home loan for your personal circumstances. They can help you get a deal that will suit your needs.
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